I just finished reading an excellent article taken from the Spring, 2004 issue of Technology Management by the Stevens Alliance for Technology Management by Shimeon Pass and Boaz Ronen. Shimeon Pass is an expert in applying the philosophy and tools of the Focused Management Methodology in industrial, service, retail and non-profit organizations and is a partner with Focused Management Ltd., a leading consulting group in Israel. Boaz Ronen is a Professor of Technology Management and Information Systems at Tel Aviv University. Dr. Ronen developed the Focused Management approach for increasing shareholder value, and his work has influenced thinking and practice related to the Theory of Constraints. Both are well published and have collaborated on several books.
This paper addresses the issue of managing a market-constrained hi-tech firm, from the vantage point of the Theory of Constraints (TOC), first introduced by Goldratt and Cox in their 1992 business novel, The Goal. Acknowledging the market as a severe and common constraint facing the organization, TOC-based methods and techniques are helpful in coping with this environment. In addition, the authors discuss a tool known as the CUT (Cost Utilization) Diagram. The CUT Diagram depicts the various resources within an organization as bars with the height of the bar representing the load on the resource while the width represents the relative cost of the resource. A further description of the CUT Diagram is provided in this article and the link to it is below and I encourage everyone to read it.
The CUT Diagram in their article shows that some of the resources are under-loaded while two of them are maxed-out at 100% which means they have dual constraints.
In 1992 Ronen and Spector expanded Dr. Goldratt’s 5 Focusing Steps to include two additional ones as follows:
1. State the goal of the system
2. Define global performance measures
3. Identify the system constraints
4. Decide how to exploit the system constraints
5. Subordinate the system to the constraint
6. Elevate the constraint
7. When a constraint is broken, return to step 3
I’ll come back to these seven focusing steps, but first I want to re-introduce the Intermediate Objectives Map (IO Map).
I’ve made several postings before about the IO Map, so this may not be new to some of you. You may recall that the IO Map was developed by Bill Dettmer in a paper he published and then again in his excellent book, The Logical Thinking Process: A Systems Approach to Complex Problem Solving. Milwaukee, WI: ASQ Quality Press, 2007. The IO Map is another of the logical Thinking Process tools that uses necessity based logic. The syntax for the IO Map is, In order to have “x”, I must have “y.” The IO Map is seen as a logical hierarchy with the Goal listed on top with Critical Success Factors (CSFs) listed directly beneath the goal. The rationale is that in order to achieve the goal, all of the CSF’s must be satisfied. Directly beneath the CSF’s we have Necessary Conditions (NC’s) that must also be satisfied to achieve each of the CSF’s.
An example of the IO Map is demonstrated in Figure 1.
In this IO Map we have stated the goal as Maximum Profitability with three CSF’s that must be in place to achieve it. The IO Map states that in order to have Maximum Profitability, I must have Maximum Throughput, Minimum Operating Expense and Minimum Inventory. Without all three of these CSF’s, the goal will not be achieved. Similarly, beneath each CSF, there are NC’s which must be in place to achieve each CSF. Now let’s return to the seven focusing steps listed earlier.
While I adamantly agree with the 7 steps put forth by Pass and Ronen, I’d like to offer a different Step 1. Instead of only stating the goal of the system, I’d like to see the first step include the other two key components of the IO Map. The first step then would be, “State the Goal, Critical Success Factors and Necessary Conditions of the system. Perhaps this step is assumed by the authors, but for a simple guy like me, or perhaps a better description would be “anal”, I’d like to see this new wording on Step 1.
As you can no doubt tell, I am a huge fan of the IO Map and all it brings to the table! I’ve used it successfully many times to improve organizations, so for me, I can’t speak of goal achievement without the other two components. As many of you know from Bruce Nelson’s and my book Epiphanized that both of us a big believers in combining tools, so to me, it’s a natural course to combine the IO Map with TOC’s 7 Focusing Steps.